Here's What's Concerning About SAM Engineering & Equipment (M) Berhad's (KLSE:SAM) Returns On Capital

If you're looking for a multi-bagger, there's a few things to keep an eye out for. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Having said that, from a first glance at SAM Engineering & Equipment (M) Berhad (KLSE:SAM) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

Return On Capital Employed (ROCE): What Is It?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on SAM Engineering & Equipment (M) Berhad is:

Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)

0.12 = RM175m ÷ (RM2.1b - RM573m) (Based on the trailing twelve months to March 2024).

Therefore, SAM Engineering & Equipment (M) Berhad has an ROCE of 12%. In absolute terms, that's a satisfactory return, but compared to the Machinery industry average of 7.6% it's much better.

Check out our latest analysis for SAM Engineering & Equipment (M) Berhad

Above you can see how the current ROCE for SAM Engineering & Equipment (M) Berhad compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering SAM Engineering & Equipment (M) Berhad for free.

What The Trend Of ROCE Can Tell Us

The trend of ROCE doesn't look fantastic because it's fallen from 16% five years ago, while the business's capital employed increased by 162%. However, some of the increase in capital employed could be attributed to the recent capital raising that's been completed prior to their latest reporting period, so keep that in mind when looking at the ROCE decrease. The funds raised likely haven't been put to work yet so it's worth watching what happens in the future with SAM Engineering & Equipment (M) Berhad's earnings and if they change as a result from the capital raise.

The Bottom Line

In summary, SAM Engineering & Equipment (M) Berhad is reinvesting funds back into the business for growth but unfortunately it looks like sales haven't increased much just yet. Investors must think there's better things to come because the stock has knocked it out of the park, delivering a 212% gain to shareholders who have held over the last five years. However, unless these underlying trends turn more positive, we wouldn't get our hopes up too high.

If you'd like to know about the risks facing SAM Engineering & Equipment (M) Berhad, we've discovered 1 warning sign that you should be aware of.

While SAM Engineering & Equipment (M) Berhad isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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